Inflation dominated the economic outlook this week, with all eyes on yesterday’s Fed meeting. In the ensuing press conference, Jay Powell struck a hawkish tone.
The US central bank chair all but confirmed the first rate raise would happen in March and did not rule out a number of aggressive rate increases. When asked if the Fed could raise rates at every subsequent meeting this year, he said the bank would be “humble and nimble” and “guided by the data”.
Markets were volatile both in the run-up to, and after, the meeting. Shares across Europe and Asia Pacific dropped this morning, following overnight declines on Wall Street, though the FTSE100 remained steady.
But rather than the speed of tapering or the timing of rate increases, the Fed’s “critical policy error” may be the “consequences of discretionary policy on the financial markets”, argues philanthropist, investor and economist John Hussman.
“By relentlessly depriving investors of risk-free return, the Fed has spawned an all-asset speculative bubble that may now leave investors with little but return-free risk,” he writes.
Elsewhere investors continue to agitate. JPMorgan, the biggest lender to fossil fuel businesses, is fighting four shareholder petitions related to climate change at the SEC, including one filed by a group of Catholics nuns.
Meanwhile, earlier this week, Seven & i Holdings, which owns 7-Eleven convenience store brand, came under pressure to split. Investors are frustrated about the company’s “outdated governance structure” and poor stock performance.
And share price proved to be a pinch point at Peloton. Activist investor Blackwells Capital urged the company to sack the chief executive John Foley and explore a potential sale after its stock collapsed. In a letter to the board, Jason Aintabi, chief investment officer at Blackwells, wrote: “The company has gotten too big, too complex and too damaged for Mr Foley to lead it.”
Nor did things get easier for Unilever chief executive Alan Jope. On Tuesday, the company announced plans to cull about 1,500 management roles globally. Job cuts are part of a restructuring that will split Unilever into five business groups, to try to improve growth.
The timing was no coincidence: it followed Unilever’s failed bid for GSK’s consumer health unit and revelations that Nelson Peltz’s activist hedge fund Trian Partners had built a stake in the company.
But there are cases where an activist investor attack is no bad thing, writes chief business commentator Brooke Masters. “Their demands can spur self-satisfied executives to action, pressure boards into dealing with incompetent managers and question poorly thought out mergers and acquisitions.”
UK businesses will be on alert for increased investor discontent as a report by funds group Link found that dividend payouts are set to drop in 2022. While many companies may up dividends, there is unlikely to be a repeat of the big one-one payments seen last year.
And UK companies face a further conundrum too: how much price rises can be passed on to customers. “Input costs have been followed by higher wage expectations and taken together with energy prices, something has to give,” said CBI director-general Tony Danker.
And finally, the incoming chair of the FRC, City veteran Sir Jan du Plessis, did not mince his words when he committed to overhauling the UK’s accounting watchdog within three months.
“The governance situation at the FRC is in a pretty poor state,” du Plessis told MPs.“They haven’t had a permanent chair for goodness knows how long. They’ve got [only] three non-executive directors. It’s really, really not a way to run the regulator that should be setting the tone for the whole of British business.”
